Buy America, sell Europe

Commentary: It’s not the plan, it’s the planners

NEW YORK (MarketWatch) — When you watch the reports on European elections, about change sweeping through the euro zone, be grateful that you live or invest in the U.S. of A.

The United States promises much. It dreams big and it always outperforms. It comes together. Through ingenuity and grit, the U.S. perseveres and pays its bills with interest.

Reuters

France's newly-elected President Francois Hollande

Europe promises the world. It dreams. Then the group starts to fight amongst itself. It falls apart. Europe defaults. It needs to be bailed out, sometimes by the U.S.A.

During the last 200 years Greece has defaulted twice, Spain twice, Portugal twice. Germany has defaulted. Italy has defaulted. There have been 10 defaults in the last 100 years. And that list, compiled by the business school at the Massachusetts Institute of Technology, doesn’t include defaults caused by “wars, revolutions, occupations and state disintegrations.”

They just kind of went belly up.

Add those wars and disasters, and European defaults might exceed 30 or more, a rate of more than one default a decade.

That’s nice of the MIT people to look at it that way. After all, the U.S. has had several wars during that time, including one with itself. Indeed, it’s bailed out Europe’s butt militarily and economically a couple of times in the last 100 years. Still, it’s paid its bills.

Weidner: Forget Europe

(3:22)

MarketWatch’s David Weidner has some advice for those trying to navigate the latest European economic upheaval: buy America and sell Europe. (Photo: Getty Images)

In many ways, it’s that history that explains why Europe is being punished in the markets for veering away from austerity and the U.S. never was. It’s why Standard & Poor’s was wrong in downgrading U.S. sovereign debt last year. It’s why Warren Buffett, who knows a thing or two about credit, called the United States a “quadruple-A” credit.

And these are the rates you get when the European Central Bank has pledge to buy $272 billion in sovereign debt from at-risk countries (France not included).

Sell all of them if you can, because Europe is about to respond to a crisis caused by printing too much money by printing too much money.

Now, for a country such as the United States, printing money may not be a bad strategy. To work, it requires something from investors: confidence. And confidence is earned.

One of the ways to earn the confidence is to never default. Another way is to turn printing money into economic expansion. And for all of our whining about the recovery — “only” a 2.5% growth rate and a “high” unemployment rate of 8.1% — it is nothing compared to the euro zone: 10.9% unemployment in May and an expected 0% economic growth rate in 2012.

In other words, we’re going gangbusters compared to the austerity-driven economies just west of the Caucuses.

And that’s largely why the United States, with a total sovereign debt load of roughly $15 trillion, has better credit than the euro zone, with $13.6 trillion.

The bigger problem, of course, is that the European Union is really an oxymoron. If Europe is a “union” then salt is pepper and up is down. It’s just patently wrong. Europe like any expansive region with multiple states is, by definition, always at war — culturally, economically and socially.

But unlike the U.S., which has a strong central government to get its states in line, Europe has to count on the goodwill of its members. You know, the members who start talks by blaming economic problems on their neighbors.

This isn’t to knock the ambition of the European Union, which was coalesced in 1993 and introduced its currency in 1999. It’s just that the 27 members have never abdicated any power to the greater good.

Reuters

Italian Prime Minister Mario Monti

That’s why French President-elect François Hollande, Mario Monti, the new prime minister of Italy, the Pasok and New Democracy parties in Greece and, for the time being, David Cameron in Great Britain and Angela Merkel in Germany really have no standing.

They represent a momentary blip in leadership among countries that never will get along nor work together, now that the global capital bubble has popped. Having never agreed to share the pain, they will never share the pain.

Ultimately, the constant upheaval of leadership and plans will make the bonds of Spain, Italy and Portugal an even dicier proposition. Private investors, seeing this will sell them. U.S. bonds will strengthen in the long-term flight to safety.

Europe is division. America is united.

It sounds silly and simple — kind of like the idea that 27 adversaries could become friends over money.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.